First of all, because new is perceived better than old. Somehow that’s in our system, evolutionary. Is it what drives our survival, our basic instincts? The young are always welcomed everywhere across the world, in every culture. Jesus with his frequent quotations of children, dictators like Hitler and Stalin posing with children – the young, small and fresh move us beyond imagination.

Second of all, because it’s easier to measure. Retention is fixing invisible problems: painting your house isn’t giving it a visually better look, unless you waited too long to do so – and that means more work (sanding, puttying) meaning more time and money and energy. So, acquisition is always better visible than retention, and when it (nearly) isn’t, that only means that the cost-efficiency of retention over acquisition has dropped dead.

I call this last one The Law of Invisible Problems – if you need to raise awareness or funding for issues, it helps if others recognise them as such. After all, problems only exist once recognised. You can even make problems appear out of thin air by getting recognition for them (by all means pointing to Global Warming there, with a maximum of 4% of human-caused CO2 emission as part of all emission).

I’ve witnessed in large enterprises how this Law of Invisible Problems works: employees telling management about issues arisen, trends they saw in future issues, even showing them in nice and shiny graphs and Powerpoints, meeting the limited RGB-view of top management. I knew management understood them and the issues, witnessed the whole process from nearby, many, many times, but the truth was that there is no funding for invisible problems.

Disgruntled employees, dissatisfied customers – they’re there, but when do they turn into problems, meaning lost employees, lost customers? And do we get blamed if that’s the case? If not, what’s there to fear? If nothing to fear, what is it that drives us?

Fact of the matter is, that getting away with lost employees and customers is rather easy – it doesn’t really lead to Punishment in most cases. Brand a lost employee as “desired exit”, brand a lost customer as “trouble-making margin-squeezer” and all of a sudden they turn into socalled “non-regretted losses”, aka collateral damage.

Acquiring something new is visible to all, it tackles a known issue, you can get a budget for it, it’s something you can tell the press and be proud of.
Prolonging or fixing something old is visible to only a few, it tackles a largely unknown issue, hard to get that budgeted, and when telling the press, the first thing they say: So you have a problem with dissatisfied [fill in the blanks]?

If you want to retain, you need absolute openness and 100% transparency between all parties involved. Try making that happen in ye olde enterprise.

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Founder of We Wire People, Martijn has 15 years experience in the field of Integration, as an Architect working in and for Enterprises. He mainly advises in case of mergers, application rationalization and Cloud / Social Media back-office integration
Martijn blogs at martijnlinssen.com

4 responses to “Why acquisition beats retention”

Agree with your Law of Invisible Problems and have seen it far too many times. I think it’s also an issue of positive v negative. While acquisition is gaining and is therefore positive, retention is often measured as “reduced attrition” – negating loss and therefore negative. Perhaps if companies stopped seeing retention in the negative that would help? Simplistic I know, but just a thought.

In fact, retention does point to something negative: a good reason for employees to leave your company. If companies were to stop taking it personally and wonder *why* all those people are so gladly willing to get out, they might actually turn it into something positive – by changing their company culture or ways

After all, if attrition is considered a problem and thus retention a solution, how big a step is it to realise that retention is only a workaround and the solution lies in the company itself?

Netflix is a counter example, we use AB testing to measure retention, and we use Customer Aquisition Cost and Customer Retention to optimize for a higher Customer Lifetime Value. If you have extra dollars to invest in growth, there is a diminishing returns limit on how much you can spend on aquisition (marketing) so beyond that point it is better to spend on retention (e.g. content deals in our case). This isn’t particularly novel, but it is extremely well tuned and with everyone in the company aligned and focused on this approach it is a very effective way to optimize the business.

Netflix isn’t “ye olde enterprise”, I don’t think most enterprises have ways to measure what their CAC, CLV or retention rates are. If anyone is interested, there is a detailed presentation on the Netflix business model/opportunity linked from http://www.Netflix.com/jobs